European Court of Human Rights

Information Note on the Court’s case-law No. 176

July 2014

OAO Neftyanaya Kompaniya Yukos v. Russia (just satisfaction) - 14902/04

Judgment 31.7.2014 [Section I] See: [2014] ECHR 853

Article 41

Non-pecuniary damage

Pecuniary damage

Just satisfaction

Award in respect of pecuniary damage sustained by company in liquidation to be paid to its shareholders

Facts - The case concerned tax and enforcement proceedings brought in 2004 against the Russian oil company, OAO Neftyanaya Kompaniya Yukos (Yukos), which eventually led to its liquidation in 2007.

In a Chamber judgment of 20 September 2011 (see Information Note 144), the Court found a violation of Article 6 §§ 1 and 3 (b) of the Convention in respect of the tax-assessment proceedings in 2000 on the grounds that Yukos had been given insufficient time to prepare its case before the lower courts. It also found two violations of Article 1 of Protocol No. 1 in that (a) the assessment of the penalties relating to 2000 and the doubling of the penalties for 2001 had been unlawful and (b) the Russian authorities had failed to strike a fair balance in the enforcement proceedings between the legitimate aims sought and the measures employed - in particular by being inflexible regarding the pace of the proceedings and obliging Yukos to pay excessive fees.

The Court reserved the question of just satisfaction.

Law - Article 41

(a)  Pecuniary damage

(i)  Violation of Article 6 - The Court could not speculate on what the outcome of the tax proceedings in 2000 might have been had the violation of the Convention not occurred. There was thus insufficient proof of a causal link between the violation found and the pecuniary damage allegedly sustained by Yukos.

Conclusion: no award (unanimously).

(ii) Violations of Article 1 of Protocol No. 1 - Yukos had paid the penalties in the tax assessment for the years 2000 and 2001 which had been found unlawful by the Court, as well as a 7% enforcement fee on these penalties. The Court assessed the amount of pecuniary damage to Yukos resulting from those payments at EUR 1,299,324,198.

Furthermore, the disproportionate character of the enforcement proceedings had significantly contributed to Yukos’ liquidation - even if the liquidation had not been caused by the shortcomings in those proceedings alone, as the company alleged. In its judgment on the merits the Court had found, in particular, that the 7% enforcement fees Yukos had had to pay for the years 2000 to 2003 had been completely out of proportion to the expenses which could have possibly been expected. The Court accepted an indication by the Russian Government, according to which an appropriate rate for the enforcement fee would have been 4%. The Court thus calculated the difference between an enforcement fee at that latter rate and the fee actually paid, and deducted from that amount the fees for 2000 and 2001, which it had already found to be unlawful in their entirety. On that basis, and after taking inflation into account, the Court assessed the amount of pecuniary damage resulting from the disproportionate character of the enforcement proceedings at EUR 566,780,436.

Conclusion: overall award of EUR 1,866,104,634 (majority).

(iii)  Distribution of the award - Since Yukos had ceased to exist following its liquidation, the award was to be paid to its shareholders and their legal successors and heirs, as the case might be, in proportion to their nominal participation in the company’s stock.

In reaching that conclusion, the Court rejected two arguments made by the Government opposing payment to the shareholders.

The first argument was that such a payment would be unjust in view of the involvement of management and some of the shareholders in the alleged tax fraud. However, given the nature of the violation found, the Court did not consider this reference to allegedly fraudulent conduct to be relevant. Yukos had already been held liable for the actions described in the various tax and enforcement proceedings and there was no reason to reduce the amount of the award to take account of conduct for which the company had already been punished.

As to the Government’s second point, that at the time of its liquidation Yukos still had a huge unpaid debt to the tax authorities and other creditors, the Court noted that instead of giving Yukos time to pay, the domestic authorities had precipitated matters by auctioning its main production unit and liquidating it, notwithstanding the risk of being subsequently unable to recover some of the company’s liabilities.  Moreover, any liabilities that Yukos may have had in respect of its creditors had been met or extinguished in the enforcement and liquidation proceedings in 2007, and there was nothing to suggest that either it or its shareholders had any remaining liability to creditors under domestic law.

Conclusion: award to be paid to shareholders and heirs (majority).

(b)  Non-pecuniary damage - Finding of violations constituted sufficient just satisfaction (unanimously).

(c)  Execution - Russia was required to produce, in co-operation with the Committee of Ministers and within six months from the date on the instant judgment became final, a comprehensive plan with a binding time frame for distribution of the award of just satisfaction.

 

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